Archives for March 2014

Despite some positive economic news, the major indices ended the week mixed as investors prepared for the end of the quarter and continued to worry about Russia. For the week, the S&P 500 lost 0.48%, the Dow gained 0.12%, and the Nasdaq fell 2.83%, dragged down by a selloff in the tech sector.[1. yahoofinance.com]

The most recent estimate of Q4 Gross Domestic Product (GDP) growth found that the economy grew more than was previously thought, clocking in at an annualized rate of 2.6% instead of 2.4%. The revised data shows that consumers spent more last quarter than economists had thought.[2. http://www.cnbc.com/id/101530274]

The Ukrainian crisis continued to simmer as Russian leaders called for more referendums in Ukrainian provinces on joining the Russian Federation. Western leaders threatened more severe sanctions if Russia doesn’t scale back the pressure.[7. http://www.cnbc.com/id/101536684] Though Russia has repeatedly affirmed its peaceful intentions, troop movements near the Ukrainian border and war games are keeping tensions high.

This week, investors can look forward to hearing Janet Yellen give a speech where she may comment on the timing of future interest rate changes. Investors will also be closely monitoring the March jobs report, which comes out on Friday, to see whether there’s any sign of a spring thaw. Positive news could reassure investors that the economy is still accelerating. On the other hand, if economic indicators don’t show improvement as the weather warms, markets could lose some steam. Despite the volatility, many analysts continue to predict continued market growth in 2014.[8. http://www.cnbc.com/id/101535542]

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

HEADLINES:

Durable goods orders jumped in February. Orders for long-lasting factory goods rebounded more than expected last month, rising 2.2% over January. The increase came as a result of broad-based growth in demand and ended two straight months of declines.[9. http://www.cnbc.com/id/101526441]

Pending home sales drop for eighth straight month. Homebuyers signed 0.8% fewer contracts in February than in January, putting home sales 10.5% below where they were a year ago. Realtors blame the unusually harsh winter and suggest that conditions may be improving. However, some analysts believe that high prices and interest rates may be causing a structural slowdown in the housing sector.[10. http://www.cnbc.com/id/101528040]

Gas prices due to drop before summer. Gasoline prices have averaged a 7.0% increase over the past six weeks, but analysts think that the hike is temporary. Gas prices should drop over the coming weeks and stay low over the summer. However, supply disruptions from weather could still send prices higher.[11. http://www.cnbc.com/id/101532477]

Chinese leaders commit to supporting economic growth. China’s premier sought to reassure investors by stating that Beijing had the tools and political commitment to support the cooling economy. Targeted measures may include infrastructure investments, lowered financing costs for businesses, and an easing of trade requirements[12. http://www.reuters.com/article/2014/03/28/us-china-economy-li-idUSBREA2R03820140328]

Stocks shook off their global worries and advanced on some upbeat data that suggests the economy may be picking up steam as the weather warms. Despite losing some ground on Friday in pre-weekend jitters, the major averages all closed out the week on a positive note. For the week, the S&P 500 gained 1.38%, the Dow grew 1.48%, and the Nasdaq advanced 0.74%.[1. https://www.briefing.com/investor/markets/weekly-wrap/weekly-wrap-for-march-17-2014.htm]

The cold winter may be losing its hold on the economy. New unemployment claims rose less than expected, and the four-week moving average fell to a four-month low, giving analysts hope that the job market is gaining momentum after a slow winter.[2. http://www.cnbc.com/id/101510229] Industrial production also appears to be emerging from its winter blues; U.S. manufacturing output rebounded in February and notched its highest growth in six months.[3. http://www.cnbc.com/id/101499508]

The Federal Reserve’s Open Market Committee (FOMC) met last week and voted to continue tapering, reducing its monthly bond purchases by another $10 billion. The Fed also clarified its forward guidance, stating that it had dropped its 6.5% unemployment rate target in favor of “ongoing improvement in labor market conditions” and stable long-term inflation.[4. http://www.marketwatch.com/story/text-of-the-fomc-decision-2014-03-19?link=MW_latest_news]

Although the threat of a regional military conflagration seems to have passed, investors are still worried about how a standoff between Russia on one side and Ukraine, Europe, and the U.S. on the other side might play out. Geopolitically, Ukraine is important because of its capacity for food production, position as a transit route for Russian natural gas into Europe, and possession of strategic Black Sea ports (some of which are now in Russian hands). In the broadest terms, Russia wants Ukraine in order to extend its influence westward. Western nations want to keep Ukraine out of Russia’s hands and keep it from disintegrating into squabbling factions. However things work out, the resolution of the Ukrainian crisis could set the stage for East-West relations for years to come.[6. http://www.businessweek.com/articles/2014-02-27/the-new-great-game-why-ukraine-matters-to-so-many-other-nations]

Looking at the week ahead: With the last FOMC meeting behind us, investors will be turning their attention to a raft of new economic data due to be released this week. Analysts are particularly interested in manufacturing data and consumer spending and will be looking for hints that cold-weather-related slowdowns are in the past.

ECONOMIC CALENDAR:

Monday: PMI Manufacturing Index Flash

Tuesday: S&P Case-Shiller HPI, New Home Sales, Consumer Confidence

Wednesday: Durable Goods Orders, EIA Petroleum Status Report

Thursday: GDP, Jobless Claims, Pending Home Sales Index

Friday: Personal Income and Outlays, Consumer Sentiment

Data as of 3/21/2014

1-Week

Since 1/1/14

1-Year

5-Year

10-Year

Standard & Poor’s 500

1.38%

0.98%

20.75%

28.57%

6.82%

Dow

1.48%

-1.65%

13.04%

24.80%

6.00%

NASDAQ

0.74%

2.40%

32.71%

38.70%

12.04%

U.S. Corporate Bond Index

-0.27%

1.47%

-2.61%

5.00%

0.43%

International

0.06%

-2.89%

10.72%

20.05%

7.63%

Data as of 3/21/2014

1 mo.

6 mo.

1 yr.

5 yr.

10 yr.

Treasury Yields (CMT)

0.05%

0.08%

0.14%

1.73%

2.75%

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Fitch Removes Negative Ratings Watch on U.S. Fitch Ratings took the U.S. off its negative ratings watch list and reaffirmed the country’s AAA credit rating. The agency cited improved economic and demographic trends in its decision.[8. http://www.cnbc.com/id/101513321]

Tensions in Ukraine ratcheted up last week as Western leaders, including U.S. Secretary of State John Kerry and German Chancellor Angela Merkel warned Russia against annexing Crimea. Despite the threat of sanctions, Russia launched military exercises near its border with Ukraine and has moved thousands of troops into Crimea and neighboring areas.

One way to term investor reactions to these global concerns is a “flight to quality,” where investors are fleeing emerging market securities in search of quality investments in the developed world. Realistically, it’s unlikely that these concerns will go away quickly, meaning we can expect additional uncertainty and market volatility.

On a more positive note, new unemployment claims unexpectedly fell to a three-month low last week, raising hopes that the winter doldrums may be past. Even better, the four-week moving average, a less volatile measure, fell to the lowest level since early Decembe.[7. http://www.cnbc.com/id/101490698] Analysts will be looking closely at next week’s unemployment claims for hints about the monthly job numbers.

The Fed will take center stage this week as the Federal Open Market Committee (FOMC) meets to determine its next monetary moves. There is little doubt on Wall Street that the Fed will stay the course on tapering and announce another $10 billion cut to its quantitative easing programs, bringing monthly bond purchases down to $65 billion. Analysts will be watching especially close as this will be new Fed chair Janet Yellen’s first turn in the hot seat.[8. http://www.cnbc.com/id/101496301 ]

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Record drop in bond holdings points to Russia. A surprising decline in foreign holdings of U.S. Treasuries has led some experts to speculate that Russia is cutting its dollar reserves ahead of potential sanctions from the West. Foreign central banks sold $104.5 billion in Treasuries last week – more than three times the previous record amount.[10. http://www.reuters.com/article/2014/03/14/us-usa-fed-russia-idUSBREA2D1JW20140314]

Business inventories climb in January. U.S. business inventories rose at the beginning of the year as businesses restocked after the holiday shopping season. However, a drop in sales means that inventories are piling up in warehouses, forcing businesses to buy less in the first quarter.[12. http://www.cnbc.com/id/101481679]

Tony Hixon of Hixon Zuercher Capital Management leads our March 2014 video update. This month he will be talking about some of the major events that moved markets in February as well as what might affect us in the days and weeks ahead.

March 9, 2014 marked the five-year anniversary of the lowest point of the S&P 500 after the financial crisis, and we are taking this opportunity to highlight just how far markets have come since those dark days. As of Friday’s close, the S&P 500 has gained just over 177.0% since the market bottom on 3/9/09.[1. yahoofinance.com]

Considering the strength of the gains stocks have made over the last five years, the big question on many investors’ minds is: How much longer can the bull market continue?

Though it’s possible that we’re approaching the end of the bull market, historically, this bull run isn’t necessarily that old. The chart below shows the number of calendar days between the beginning and end of recent bull markets in the S&P 500 – broadly defined as a period in which the S&P 500 gains at least 20% without a 20% decline in between. You can see that the current one hasn’t even cracked the top five.

Source: CNN Money, Bespoke Investment Group

While we can’t be certain that this bull market will continue, we can look at current economic fundamentals and market trends and make educated guesses about what may come. A lot of cash poured out of markets between 2008 and 2012, and not all of it is back in play. Though many investors have put their money back into stocks, there are still significant amounts of cash on the sidelines, suggesting that equities may still have growth ahead of them.[5. http://blogs.wsj.com/moneybeat/2014/03/04/bull-markets-five-year-anniversary-in-five-charts/]

Economically, the U.S. is chugging along steadily. Gross Domestic Product (GDP) growth is modest but fairly robust. The Federal Reserve is confident enough about economic performance that it’s taking steps to remove monetary props. Job growth is slowly gaining steam. U.S. companies are doing reasonably well, and have been able to carve out earnings growth despite tough business conditions. And finally, market growth has been fairly broad-based, meaning recent gains haven’t been shackled to the performance of a few high-flying sectors.[6. http://www.marketwatch.com/story/what-this-stock-bull-market-needs-to-live-a-6th-year-2014-03-06?pagenumber=2]

Looking ahead, here are some factors that have the potential to promote further growth this year:

U.S. GDP growth needs to pick up steam and reach 3.0% by the end of 2014.

Housing, manufacturing, and auto sales need to maintain their gains.

Congress must work toward meaningful, long-term tax reform to encourage business spending and the return of foreign earnings sitting abroad.

While we can’t be certain about which way markets will move, we can be fairly certain that volatility will be sticking around for a while. There is a lot of uncertainty in global markets right now and uncertainty frequently translates into volatility. While volatility can be stressful, it’s important to keep it in perspective, and to try and think long-term.

Overall, we’re very pleased with how far markets have come in the past five years and we look forward to supporting you for the next five years and beyond.ECONOMIC CALENDAR:

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

HEADLINES:

China’s exports plummet on global uncertainty. Exports from the world’s second-largest economy tumbled 18.1% in February, stoking fears about China’s economic recovery. Analysts hope that seasonal variations around the Lunar New Year Holiday are responsible for the unexpected decline.[8. http://www.cnbc.com/id/101474303]

U.S. household wealth jumps. The total net worth of U.S. households rose to a new high at the end of 2013, reaching $80.66 trillion as stock market and housing gains boosted wealth. Increases in housing value make it easier for Americans to borrow against equity, hopefully foreshadowing increases in consumer spending.[9. http://www.cnbc.com/id/101472629]

Planned layoffs drop in February. The number of American companies planning to lay off employees fell last month, in a positive sign for the labor market. The number of planned job cuts fell by 24.0% as compared to February 2013.[10. http://www.cnbc.com/id/101471385]

Utility bill scams on the rise. Higher winter energy bills are contributing to an increase in email scams. Fake billing notices from utility companies are arriving in inboxes across the country; clicking on links within the email could download malicious software or reveal sensitive personal information.[11. http://www.cnbc.com/id/101473487]